The Republican tax bill that appears headed for President Trump’s desk reduces the ability of home buyers to deduct mortgage interest, which will be a hit to home shoppers in Southern California and the Bay Area, where housing costs are sky-high.
But the interest provision is far more limited in scope than a previous proposal. Real estate experts and professionals said Tuesday that they don’t expect a big effect on home buying in the region, and that any ramifications will be largely restricted to well-to-do neighborhoods.
Under the new plan, which passed the House on Tuesday and was headed for a late vote in the Senate, buyers can deduct interest on mortgages up to $750,000, for homes bought after Dec. 15. (Homes purchased on that date or before then aren’t affected.) That’s down from the current $1-million limit, but an increase from a $500,000 cap that previously passed the House.
That means a home buyer with a 20% down payment can purchase a $930,000 home and still deduct all the interest. Even for a borrower who took out a $1-million loan at 4% interest, $30,024 of interest payments are deductible in the first year, leaving $9,656 that isn’t.
Christopher Thornberg, founding partner with Beacon Economics, predicted prices will keep on climbing in Southern California, given the robust economy and shortage of listings. “If you are borrowing a million bucks to get a home, the write-off is not your primary concern,” he said.